Preview

Balance Sheet and Enron Derivatives Trading

Powerful Essays
Open Document
Open Document
1810 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Balance Sheet and Enron Derivatives Trading
How did the corporate culture of Enron contribute to its Bankruptcy?
Once a sound company listed in fortune 500, Enron, lead to downfall because of deceptive accounting system incorporated within the organization. Enron’s dubicious finance finally collapsed in Dec 2, 2001 as it filed Bankruptcy in New York Bankruptcy court.

The corporate culture of Enron focused on financial performance neglecting the stakeholder’s value .The relentless emphasis on the importance of the shareholder’s value created the conditions for the disconnection of Enron from their essential moral underpinnings, encouraging them to concentrate exclusively on financial performance, and to neglect stakeholder’s common interest, but the essential interests of the economies and communities in which they operate..The problem with established economic theories of corporate governance is that they misconceive the irreducible corporate governance, at the same time as underestimating the complexity of the phenomenon. (Clarke, 2005)

The ‘rank and yank’ system implanted by Skilling created the worst situation as the employee started the rivalry between each other in terms of making money at any cost violating the corporate culture. Fewer rewards were given to those who produced sustainable financial fortune and the bottom ranked employees were forced out

The bad fortune of the company was destined by Enron’s management incentive system. Destructive business culture was implanted as Enron primarily focused on employees self worth rather than company’s worth. Extra rewards were provided to those candidates who contributed on promoting productivity. Those who contributed themselves on controlling the existing resources were not skewed with any incentives. The company’s profit was under a billion dollar but the average compensation of top 200 executives was over 1.4 billion. Employees at the executive level were promoted quickly that left the lack of good executive skill at the vacant level.



References: Ackman,D,The Journal of Andrew Fastow,Fall guy,10-03-2002,8:55,A.M,E.T. Clarke,T.2005,’Corporate Governanace’, The Journal of An International Review,Oxford,Vol .13,Iss.5,p.598. Feeley, J, Weildich, T, Mar 7, 2006, 16:48. EST Ferrel.et.al, 2009,’Business Ethics’, The Journal of The Fall of Enron: A Stakeholder Failure, 7th edition. Kadlec, D, 2002, The Journal of Enron: Who’s Accountable? Jan13, 2002 Kobrak, K.2009, The Journal of Business History Review, Boston, Vol.83, Iss.1, p.73. Lenazun, Jan.19, 2010,-3:18 P.M Orey, M.2006,’Business Week’, The Journal of Enron’s Last Mystery, Newyork, p.28 :

You May Also Find These Documents Helpful

  • Good Essays

    Enron Case Study

    • 521 Words
    • 3 Pages

    Management was compensated extensively using stock options. This stock option awards caused management to make up a look that the company is aggressively growing and it actually kept the stock price going up and up. Enron’s statement of 2010 stated that, within three years, these awards were expected to be exercised.…

    • 521 Words
    • 3 Pages
    Good Essays
  • Good Essays

    In recent years, Mr. Richard Finlay, chairman of the Centre for Corporate and Public Governance, as you read the story most of all of the executives, lawyers, and auditors along with some of the government was signing off on document and at the same time had partnership with the corporation which was warning about the danger of corporate corruption, but greed continues to dominate the boardrooms of corporations. However, Enron's failure indicates that the "ethical deficit" of corporate America remains a serious problem. Auditor, Lawyers should not have a partnership with the company they represent. The same person that make the reports should not be the ones to sign off on the…

    • 651 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Enron Case Study

    • 964 Words
    • 4 Pages

    What happened to Enron was just its founder at the time Ken Lay was greedy and unethical right from the beginning, and that was how he steered the boat to that direction. Instead of firing traders who were pocketing profits for themselves, manipulating reports which showed steady financial trends, he managed to keep them, because they were making a lot of money for the company. So he was giving opportunities for this staffs to do underhand works and he only cared if it made profits for the company. Later, when Jeff Skilling joined Enron, he developed what Lay had…

    • 964 Words
    • 4 Pages
    Good Essays
  • Powerful Essays

    Legal Issue-Enron

    • 1774 Words
    • 8 Pages

    References: Dharan, Bala G.; William R. Bufkins (2004), Enron: Corporate Fiascos and Their Implications, Foundation Press, ISBN 1-58778-578-1…

    • 1774 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    This kind of contempt of enterprise culture is the consequence that Enron changed their "focus strategy" and transferred into financial investment and so-called innovative business. In 1997, Enron's business expanded to natural gas derivative financial products transactions. In 2000, the "commodity exchange" accounted for nearly 90% of Enron’s sales. These contracts include interest rate swaps, derivatives and other complex financial products. However, this so-called "innovation" lies in the fact that the traditional accounting system is very difficult to confirm these new contract revenues. This is the "Enron trap". There is no doubt that Jeff Skilling had reversed the corporate values of Enron, especially in 1997, Andy Fausto was appointed as the CEO of Enron, started a new round of "unconventional" expansion under a limited market demand situation. At this time, Enron has already changed from a large energy company to a company engaged in energy derivatives transactions.…

    • 778 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Enron senior management gets a failing grade on the truth and disclosure and a passing grade on arrogance and greed. For Fifteen years Enron was a paper tiger with few questions ever asked concerning its earnings profitability or business practices. The deceit and deception by Enron management seems to be the environment of a divisive marketing campaign that Kenneth Lay, Jeffery Skilling and Andrew Fastow hide while touting Enron. In reality Enron was one of the greatest Ponzi schemes to date, all hat and no horse. The management was superb at financial fraud and unparalleled at persuading the public and investors that they were respectable and legitimate. The money they stole bought a lot of respect and they spent freely on image and luxury in proving Enron was for real…

    • 2316 Words
    • 10 Pages
    Good Essays
  • Better Essays

    The purpose of this paper is consider three possible rationales for why Enron collapsed—that key individuals were flawed, that the organization was flawed, and that some factors larger than the organization (e.g., a trend toward deregulation) led to Enron’s collapse. In viewing “Enron: The Smartest Guys in the Room” it was clear that all three of these flaws contributed to the demise of Enron, but it was the synergy of their combination that truly let Enron to its ultimate path of destruction.…

    • 1830 Words
    • 8 Pages
    Better Essays
  • Powerful Essays

    What was it about the ethos Skilling created among Enron's employees, particularly upper management, that made, in hindsight, the demise of the company nearly inevitable? Skilling, who in Senate testimony has described the reason for Enron's collapse as a "classic run on the bank," had for years focused on "taking profits now and worrying about the details later," as one former employee claimed. (Fowler, 2002) Whereas former Chief Operating Officer Rich Kinder from 1990 to 1996 had demanded his managers focus on cash flow and meeting earnings targets, another former employee and a…

    • 4794 Words
    • 20 Pages
    Powerful Essays
  • Good Essays

    Enron Case

    • 650 Words
    • 3 Pages

    With Enron, the responsibility and blame started with Enron’s executives, Kenneth Lay, Jeffrey Skilling, and Andrew Fastow. Their goal was to make Enron into the world’s greatest company. To make this goal a reality, they created a company culture that encouraged “rule breaking” and went so far as to “discourage employees from reporting and investigating ethical lapses and questionable business dealings” (Knapp, 2010, p. 14). They insisted the employees use aggressive and illegal accounting procedures.…

    • 650 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Enron: Tone at the Top

    • 1288 Words
    • 6 Pages

    Enron, one of the largest corporations in America and once ranked Fortune magazine’s “Most Admired Companies” went down in 2001 after they were exposed of defrauding their investors in a series of creative ways. Enron was known for being an innovative company in the energy, technology space but much of their innovation seemed to lie in how they managed to hide their debts and cover their losses through unscrupulous means. They would book hypothetical profits on projects and joint ventures that had not yet launched and on the day a deal was signed. They would hide their debts through the use of complex Special Purpose Entities (SPEs). They would solicit support from top tier investment banks by giving them lucrative deals to work on. All this and more was conducted with one clear objective in mind: to make as much money as possible through manipulation. Everyone was happy as long as there was money to be made. Ethics was out the window. Manipulating financial books and records, exploiting deregulated markets became their predominant strategy -all in the name of maximizing profits and pushing up the company’s stock price. When indicted, the chief executives of Enron, Kenneth Lay (former Chairman and CEO) and Jeffrey Skilling (CEO), amongst others, continually denied their involvement.…

    • 1288 Words
    • 6 Pages
    Better Essays
  • Good Essays

    The Enron Scandal

    • 844 Words
    • 4 Pages

    Carson, Leigh. The Real Enron Scandal. New Republic; 01/28/2002, Volume 226 Issue 3, p7, 1p, 1bw.…

    • 844 Words
    • 4 Pages
    Good Essays
  • Satisfactory Essays

    Business Failure Paper

    • 430 Words
    • 2 Pages

    The collapse of Enron is known as one of the biggest corporate scandals in the twentieth century lead by greed, lack of leadership and bad investment. Employees of Enron loss their retirement saving, jobs and some even committed suicide as a result to the down fall of Enron. Enron known as the world’s largest energy companies in the United State failed due to unethical accounting techniques and poor leadership. One may wonder how this is possible with the cleaver work of chief executive officer of Enron this transformation of making Enron a financial trade company done by hidden huge amount debt and inflating earning. Companies put lots of trust in their key employees many time no question ask in their decisions. In Enron this form of one man show leadership contribute to its demise. In a well structure business everyone is consider a key employee and decisions are made to benefit every employee. In the case of Enron failed to intervene in the wrong doing of the management staffs because sales were increasing which is…

    • 430 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Enron grew into the nation’s 10 largest company before collapsing after a rival backed out of a deal to buy Enron. Since the company decided to back out and not buy Enron, many of Enron’s big trading partners stopped doing business with them. Dynegy, Enron’s rival company, backed out of buying the company when learning that Enron was billions of dollars in dept and was in severe complex partnerships.…

    • 169 Words
    • 1 Page
    Satisfactory Essays
  • Better Essays

    Enron's Code of Ethics

    • 1288 Words
    • 6 Pages

    This writing will analyze Enron’s Code of Ethics and examine the sections on values and corporate responsibility, it will also use applicable theories and concepts and will detail Ken Lay’s view of ethics and Enron’s corporate social performance, as well as reflect Enron to be socially irresponsible to everyone with any type of financial investment in Enron because of the deception it practiced with employees and investors about its true financial status, despite having stated in its company code of ethics that transparency, integrity, and respect for the law would be the cornerstones of its daily operations.…

    • 1288 Words
    • 6 Pages
    Better Essays
  • Powerful Essays

    Enron Case Study

    • 7712 Words
    • 31 Pages

    Cited: 1. “A chronology of Enron Corp.”. CNNMoney.com. January 21, 2002. 2. Byrne, John A., France, Mike, Zellner, Wendy. “At Enron, ‘The environment was Ripe for Abuse’”. Business Week Online. 2/15/2002. 3. Byrne, John A., Lavelle, Louis, Byrnes, Nanette, Vickers, Marcia, Borrus, Amy. “How to Fix Corporate Governance”. Business Week. 5/6/2002, Issue 3781. 4. “Enron chief scorned asset division”. Ft.com. http://specials.ft.com/enron/FT3AB0FQKXC.html 5. Flora- Telephone interview on February 16, 2005 at 3:00pm with Ken Flora-Team Leader of Accounting Operations. IPL, PO BOX 1595, Indianapolis, IN 46221 6. Hill, Andrew, Fidler, Stephen. “Enron ties itself up in knots, then falls over”. Ft.com. http://specials.ft.com/enron/FT3A5RP52XC.html 7. Lawrence, Anne T., Weber, James, Post, James E., Business and Society. 11th ed. New York, NY, McGraw-Hill Irwin 2005. 8. Kidwell- Telephone interview on February 15, 2005 at 4:30 pm with Rich Kidwell Financial Advisor. Merrill Lynch , 111 Monument Circle, Indianapolis, IN 46221. 9. McGee-Telephone interview on February 16,2005 at 5:30 pm with Joe McGee CLU, ChFC. AUL Tower Agency, 12800 North Meridian St., Suite 490, Carmel, IN 46032 10. Pellegrini, Frank. “Andersen: The Whistle Not Blown”. Time.com. www.time.com/time/nation/printout/0,8816,194573,00.html 11. Preston, Robert, Koller, Mike. “Enron Feels the Power”. InternetWeek. 10/30/2000, Issue 835. 12. Robbins, Stephen P., Coulter, Mary, Management. 7th ed. Upper Saddle River, New Jersey, Prentice Hall 2002. 13. Wong, Paul T.P., “Lessons from the Enron Debacle: Corporate Culture Matters”. Psychjourney.com. 2004 http://psychjourney.com/Corporate%20Culture%20Matters.htm 14. Ross, Stephen, Westerfield, Randolph, Jordan, Bradford. Fundamentals of Corporate Finance. 6th ed. New York, NY. McGraw-Hill Irwin 2003.…

    • 7712 Words
    • 31 Pages
    Powerful Essays

Related Topics